Institute of Mathematics and Informatics Bulgarian Academy of Sciences
Serdica Mathematical Journal, Vol. 28, No 3, (2002), 207p-218p
In this paper we use a Monte Carlo scheme to find the returns
that an uninformed investor might expect from an American option if he
followed one of several näıve exercise strategies rather than the optimal
exercise strategy. We consider several such strategies that an ill-advised
investor might follow. We also consider how the expected return is affected
by how often the investor checks to see if his exercise criteria have been met.
∗This research, which was funded by a grant from the Natural Sciences and Engineering Research Council of Canada, formed part of G.A.’s Ph.D. thesis .